Financing decisions determine both the mix and the

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Unformatted text preview: Current Assets Current Liabilities Fixed Assets Making Investment Decisions Long-Term Funds Making Financing Decisions assets held by the firm. Financing decisions determine both the mix and the type of financing used by the firm. These sorts of decisions can be conveniently viewed in terms of the firm’s balance sheet, as shown in Figure 1.2. However, the decisions are actually made on the basis of their cash flow effects on the overall value of the firm. Review Questions 1–7 What financial activities is the treasurer, or financial manager, responsible for handling in the mature firm? 1–8 What is the primary economic principle used in managerial finance? 1–9 What are the major differences between accounting and finance with respect to emphasis on cash flows and decision making? 1–10 What are the two primary activities of the financial manager that are related to the firm’s balance sheet? LG4 1.3 Goal of the Firm As noted earlier, the owners of a corporation are normally distinct from its managers. Actions of the financial manager should be taken to achieve the objectives of the firm’s owners, its stockholders. In most cases, if financial managers are successful in this endeavor, they will also achieve their own financial and professional objectives. Thus financial managers need to know what the objectives of the firm’s owners are. Maximize Profit? earnings per share (EPS) The amount earned during the period on behalf of each outstanding share of common stock, calculated by dividing the period’s total earnings available for the firm’s common stockholders by the number of shares of common stock outstanding. Some people believe that the firm’s objective is always to maximize profit. To achieve this goal, the financial manager would take only those actions that were expected to make a major contribution to the firm’s overall profits. For each alternative being considered, the financial manager would select the one that is expected to result in the highest monetary return. Corpora...
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